I use stock screeners every day. I cannot imagine investing in stocks without the assistance of a screener.
There are over 10,000 stocks out there and you need a quick and reliable way to sort through them all. It’s not enough to type familiar ticker symbols into a website and do a spot check on whatever items happen to be displayed.
For one, most people’s universe of familiar stocks is relatively small. And that alone will limit one’s investment opportunities. And two, even if your universe of familiar stocks is larger than most, nobody’s is big enough to stay abreast of them all.
Nor would you want to. Many stocks should not even be considered as investments. So you don’t want to clutter your mind with those tickers. But many others are worthy of consideration, and you need a way to get those onto your radar screen.
This is important. Many investors are not seeing the kinds of returns they want in their portfolios because their universe of familiar stocks is limited. What’s interesting is that some of your best performing stocks right now were likely new to you at some point.
But there are plenty of others that could also be top performers for you if you only knew about them. And the best way to discover new, potentially profitable stocks is to regularly scan for the best opportunities.
Some people avoid screeners because they think it’s complicated, or they don’t think they know enough about stocks to look for the right things.
But you don’t have to be an analyst to benefit from a screener.
For example, if you’re interested in finding some new stocks for your portfolio, just ask yourself some simple questions.
Such as: Do I want stocks that will see both sales growth and earnings growth next year?
If so, plug those into the screener.
Now, only those with your desired growth rates will appear on your list. And those with negative sales growth or negative earnings growth will NOT be on that list, so you don’t have to waste your time on them.
Would you prefer your stocks to have low debt levels or high debt levels?
(If you’re thinking about traits you’d like your stocks to have, I’m assuming you said low debt levels.) And if that’s the case, plug that into your screener as well.
Now, only stocks with your desired growth rates AND low debt will come through.
Would you want your stock to post a positive surprise or negative surprise?
If you’re bullish, you probably said positive surprise.
There’s no foolproof way to perfectly predict which stocks will positively surprise in the future. However, studies have shown that stocks that have surprised in the past have a tendency to surprise again in the future. So by screening for stocks that have recently posted positive surprises, you are increasing your chances that those stocks will positively surprise for you.
Just go down your wish list of characteristics you’d like your stocks to have.
Your criteria do not have to be fancy, and your screens do not have to be complex. Much of it is common sense. And the screener will help you sift through all of the garbage so you can spend your time on only those worth considering.
A good screener can also inspire you and introduce you to new ways to pick good stocks. In the Research Wizard (the screener that I use daily), there are hundreds of different screening items to pick and choose from. (I can even create my own.) And they are all organized in easy to understand categories like Growth, Valuations, Margins, etc.
But in addition to the most common and most popular screening items, there are other lesser known items available, but no less powerful.
A great example is the R-Squared Growth Rate item. I had seen that item in the screener over and over again. One day I decided to test it. I read the definition that came with it and decided to give it a try.
Long story short, I was amazed at its predictability. And I ended up creating a screen with that little known item. And I was so glad I did. Because that screen was actually UP in the bear market of 2008 while the market plunged nearly -40%!
They say when you play a sport with someone better than you, it raises your game. Or when you work with a talented person, you perform better. The same is true with the tools that you use.
By seeing what a tool is capable of, it allows you to think about what you could be capable of.
I never would have ‘discovered’ the R-Squared Growth Rate item (not to mention countless others) if those items hadn’t been staring at me and made available in a tool that allowed me to test them.